Voice of the Industry

New beneficial ownership regulations will fight financial crime, but not without a burden on banks

Thursday 17 November 2022 07:29 CET | Editor: Raluca Ochiana | Voice of the industry

Dr. Henry Balani from Encompass Corporation reveals the latest regulatory updates around beneficial ownership across the globe and shares advice on how to comply with them.


Across the globe, the standards of financial transparency in the form of understanding beneficial ownership are on the rise. There’s little doubt that knowing who owns what (i.e., the identity of a beneficial owner) is a key aspect of anti-money laundering efforts and fighting financial crime. Agencies and regulators at the national and international level – including the Financial Action Task Force1, the European Union2, the United Kingdom3, the United States4, and others – recognise the importance of creating and maintaining beneficial ownership databases to fight financial crime. But it’s not without additional burden on banks, enablers, and others within the purview of regulation. 

The main thrust of beneficial ownership is to identify the ultimate beneficiary of a company or account. The effort required to unravel beneficial ownership, however, can be complex. This is sometimes by design. For years, wealthy individuals, autocrats, and criminals have intentionally found ways to offshore their capital, protecting their assets from taxation or confiscation. Obfuscating beneficial ownership through the incorporation of a trust or shell company has become a cottage industry in countries like Austria5, Columbia to St. Kitts & Nevis. We even see mature economies like the US6 and the UK7 called out as examples where the true owner of a company is difficult to determine.

Much of today’s thinking on financial crime and the importance of understanding beneficial ownership stems from the Pandora Papers and Paradise Papers – two revelatory reports on the topic. These reports uncovered (publicly) a massive network of offshore companies and bank accounts controlled by prominent business people, politicians, and celebrities alongside drug traffickers, terrorist groups, and a cadre of sanctioned despots and adversarial regimes. 

Accelerated by the war in Ukraine and highlighted by the number of Russian oligarchs sanctioned by Western nations8, a global movement towards financial transparency is pushing back on these dark corners of the economy, moving the conversation around beneficial ownership to the fore. 

US establishes a federal database 

Efforts in the US to ramp up beneficial ownership transparency have been bipartisan and reached a fever pitch recently with the passing of the latest National Defense Authorization Act (NDAA). Within NDAA’s budget, the Financial Crimes Enforcement Network (FinCEN), a bureau of The Department of the Treasury, is charged with implementing the Corporate Transparency Act (CTA) by 2023. 

The CTA includes a series of rules that impact how beneficial ownership information is collected and accessed. In October 2022, FinCEN issued its final rule requiring most corporations, LLCs, and others that do business in the US to register their beneficial ownership, setting up a framework for a national beneficial ownership database. 

FinCEN’s beneficial ownership database represents the first wide-ranging, federally mandated collection of beneficial ownership in the US for the purpose of fighting financial crime. (It should be noted that states have long collected and maintained their own beneficial ownership register, prior to FinCEN’s rule, which includes similar information but is established for tax purposes.) 

FinCEN’s move represents a historic shift towards financial transparency. But it will also pose a challenge to financial institutions who will be required to reconcile inconsistencies in the newly minted federal database with state-owned and third-party beneficial ownership data. 

International efforts on beneficial ownership 

Across the pond, the UK published its Economic Crime (Transparency and Enforcement) Act 2022 (ECTE). Similar to the US, the UK’s efforts are specifically designed to target ‘bad actors’ and foreign adversaries. Included in the ECTE are reforms to Companies House, the UK’s public register of companies established in 1844; the creation of a Register of Overseas Entities to prevent sanctioned individuals from using UK property to launder money; as well as reforms that grant power to law enforcement to seize and recover crypto assets. 

Elsewhere, Switzerland’s Federal Department of Finance, too, drafted a bill to centralise beneficial ownership information which is slated to be finalised in June 20239. This follows a trend across Europe to centralise beneficial owner information, from Germany (Transparency Register and Financial Information Act, 2021) to Italy (Ministry of Economy and Finance’s new guidelines establishing a beneficial ownership register, May 2022). 

These efforts are in line with recommendations put forth by the Financial Action Task Force (FAFT), an intergovernmental body that sets international standards to address money laundering and financial crime. FAFT set the tone for beneficial ownership collection in March 2022 in its amendments to Recommendation 24 when it stated that countries should ‘require beneficial ownership information to be held by a public authority or body functioning as a beneficial ownership registry’. To its credit, many countries have followed suit and are drafting legislation establishing new registers or retooling existing company registers. 

Burden on banking and compliance 

The burden of complying with new beneficial ownership standards rests on the LLCs and businesses required to provide their beneficial ownership information and the regulated firms required to conduct due diligence. 

The latter group in particular, which includes financial institutions, will be impacted most acutely given their status as a regulated industry and their exposure to corporate clientele. 

What issues will a new beneficial ownership database present? 

Financial institutions already dedicate large sums to developing policies and processes to conduct beneficial ownership due diligence on their customer base. Existing regulations require these financial institutions to identify their customer’s risk profiles and make a determination as to whether or not to onboard them. But as policy and the regulatory environment evolve, so too must a financial institution’s Know Your Customer (KYC) process. 

For example, if an existing customer ends up being sanctioned by regulators, financial institutions must freeze the account and report it to the relevant authorities. Continually monitoring existing customers and ensuring their records are up-to-date can be a challenging task, often requiring sophisticated regulatory technology solutions.   

A centralised database would likely further complicate matters as financial institutions would have to triangulate and validate the beneficial ownership information in the new database with existing sources. The added challenge here is the reliance on external data and documents, typically coming from official sources that may not be easily accessible or even up to date. 

Further complications come from multinational customers where there is a need to identify corporate structures outside of the country in which the financial institution is based. In this scenario, analysts have to be able to draw their customer’s corporate hierarchy across borders, based on ownership structure. Inconsistent definitions of ownership, along with different naming conventions in fields as simple as the address can be difficult to establish and maintain. It can also be the case that if subsidiaries of corporations have been registered in jurisdictions with company secrecy laws, the job of determining these corporate structures can be nearly impossible. The added operational burden, which includes reconciling federal data with state and third-party data, will increase the time and cost it takes to execute due diligence. 

Financial institutions will also have to navigate carve-outs. These carve outs, which exempt specific company types or industries from beneficial ownership requirements, make exceptions for reporting beneficial ownership information. For example, the proposed FinCEN register exempts corporations with over 20 employees and over USD 5 mln in sales from reporting their beneficial ownership information. Carve-outs will create an additional layer of complexity as financial institutions look to standardise the collection and processing of beneficial ownership across the board. 

Beneficial ownership: a net positive 

Overall, international efforts to strengthen beneficial ownership reporting requirements represent a net positive. Knowing who owns what will help governments, businesses, and financial institutions fight financial crime and push criminals out of the economy. 

Too often criminals take advantage of the lack of coordination between jurisdictions as well as the time it takes to track down an ultimate beneficial owner. But with government agencies now in the process of rolling out new beneficial ownership rules, regulations and databases, criminals will face a more coordinated response.

An important focus of beneficial ownership is to ensure that these initiatives can be easily adopted by financial institutions, with realistic expectations as to the burdens imposed by the cost and operational complexity of compliance. Only then can we expect beneficial ownership registers to be valuable.



  1. https://www.fatf-gafi.org/

  2. https://e-justice.europa.eu/38590/EN/beneficial_ownership_registers_interconnection_system_boris

  3. https://commonslibrary.parliament.uk/research-briefings/cbp-8259/

  4. https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet

  5. https://www.dw.com/en/the-whos-who-of-european-tax-havens/a-16753202

  6. https://www.nytimes.com/2019/11/07/magazine/how-to-set-up-a-shell-company.html

  7. https://www.financeuncovered.org/stories/explainer-video-how-sham-companies-are-created-in-the-uk-to-benefit-money-launderers

  8. https://www.politico.com/news/2022/08/02/list-of-sanctioned-russian-oligarchs-businesses-00049301

  9. https://www.step.org/industry-news/swiss-government-begins-work-central-register-beneficial-ownership


About Dr. Henry Balani 

Dr. Henry Balani is a financial services executive with over 25 years of experience in the regulatory technology and consulting industries. In his current role as Global Head of Industry & Regulatory Affairs, he oversees relationships with Industry Analysts and Regulatory Agencies with a focus on raising Encompass’ profile as a leader in addressing financial crime through RegTech solutions. In his previous role as Global Head of Strategic Affairs at Accuity (now LexisNexis Risk Solutions), he advised banks, money services businesses, and financial technology firms on implementing compliance solutions related to anti-money laundering (AML), KYC, and OFAC sanctions. Dr. Balani regularly speaks at major regulatory compliance conferences and has advised US government agencies on the operational impact of AML and OFAC regulations in the financial services industry and has acted as a consultant to international government agencies including the IMF, FATF, and the World Bank. 

About Encompass Corporation 

Encompass Corporation (Encompass) transforms regulatory compliance and customer onboarding with Know Your Customer (KYC) automation. As a global leader in automated KYC due diligence worldwide, Encompass serves global banks and financial institutions to streamline their KYC process and comply with regulations and requirements. Launched in 2012, Encompass serves customers across the globe and features offices in Amsterdam, Belgrade, Glasgow, London, New York, Singapore, and Sydney.

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Keywords: regulation, financial crime
Categories: Fraud & Financial Crime
Companies: Encompass
Countries: World
This article is part of category

Fraud & Financial Crime


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